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Sold as seen? Duty of disclosure for the sale of real estate

Honesty is the best policy - this also apples to the sale of an owner-occupied property. If sellers fail to disclose major shortcomings to buyers and “hope for the best”, they incur the risk of becoming liable to pay damages sometime later. When private persons sell a residential property a dispute can arise quickly if buyers find shortcomings after the handover that they were not aware of beforehand. If the roof is not watertight, the foundation is not solid, or mildew appears – some problems only show up after years of use or when building alterations are made. Can the buyer sue for damages? In practice, the warranty covering material or title defects is usually ruled out in the purchase agreement, so that in principle no claims can be asserted.

A disclaimer of warranty, however, does not apply if sellers have fraudulently concealed a defect. They are liable for up to ten years for the costs to rectify the defect in the real estate. The often-held opinion among many sellers that defects do not have to be disclosed to buyers because they can view the property, is therefore incorrect. Sellers must actively point out certain defects in order to protect themselves against far-reaching warranty claims: If sellers are aware of a defect, they must inform buyers without being asked if it would be reasonable to assume that buyers aware of the defect would either not sign the purchase agreement or only do so at different conditions. According to case-law, sellers even have to take action even if they merely consider a defect to be possible or are aware of circumstances that could justify such as suspicion. However, the disclosure duties are also limited. Sellers do not have to inform buyers about defects that could be easily identified during a site visit or about defects of which the buyer is already aware.

The case-law contains numerous examples of such disclosure duties. For instance, sellers must point out if there is no building permit for an extension, if hazardous materials have been used for the construction (e.g. asbestos), if the building is subject to a preservation order or if major works were performed on the building by laymen without the assistance of skilled professionals. Sellers are also obliged to answer buyers’ inquiries truthfully. Even if they lack the necessary information, a false declaration cannot simply lead to freedom from defects. As a result, sellers would be better advised to admit openly that they are not certain about something before providing information haphazardly.

If major defects are discussed prior to the signing of the contract, it is good practice to inform the notary public and to have this documented in the purchase agreement. As an independent and impartial advisor to all of the people involved, the notary public ensures that the discussed defects in the object of purchase and the relevant necessary accords can be recorded in the notarial purchase agreement in a manner that is legally watertight.

Dr. Herbert Buschkühle is an attorney-at-law/tax advisor/notary public/ specialist attorney for tax law/specialist attorney for inheritance law at PKF WMS Dr. Buschkühle PartG mbB Rechtsanwälte Steuerberater, co-operation partner of PKF WMS Bruns-Coppenrath & Partner mbB Wirtschaftsprüfungsgesellschaft Steuerberater Rechtsanwälte (member company of the PKF network).

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